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The German Banking Act (the Act) sets out the licensing requirements for the provision of cross‐border financial services into Germany. The licensing requirements under the Act incorporate the old licensing regime as well as subsequent EU regulations. The licensing requirements for non‐European Economic Association (EEA) credit institutions were not sufficiently addressed in the Act. Consequently, controversy surrounds the lawfulness of crossborder financial services by non‐EEA institutions in Germany. While, however, the German Financial Supervisory Authority (Bundesanstalt fürinanzdienstleistungsaufsicht, the BAFin) followed a liberal licensing policy, this dispute was mainly academic. In April, 2002, the BAFin published a letter expressing its intention of changing this liberal policy. Market participants voiced concerns at the proposed changes to the BAFin policy. This paper describes the statutory background of the licensing requirements and discusses the possible consequences for the market of the policy change.